How to anticipate the unpredictable with the hardship clause

The so-called “hardship” clause, or contingency clause, is a strategic asset for businesses. It allows a contract to be renegotiated if unexpected changes — economic, regulatory or related to costs — make its execution excessively expensive for one of the parties.

Since the introduction of article 1195 in the Civil Code in 2016, this clause has gained recognition, offering businesses crucial contractual flexibility to navigate an increasingly uncertain economic environment.

Importance and limits of the hardship clause

Interest

For SMEs and startups, this clause is particularly valuable in long-term contracts, such as supply or distribution contracts. In the event of a sudden increase in raw materials or new regulatory requirements, the clause makes it possible to maintain business relationships without interruption, by readjusting the terms of the contract according to new realities. It is a security shield that protects against unexpected losses and maintains stable operations.

Limits

• The party invoking the hardship clause must not have accepted the risk of this type of change when signing the contract.

This lack of care means that no agreement, tacit or explicit, must exist for this party to assume the consequences of the unexpected. So check carefully that your co-contractor did not make you renounce this legal device through a more or less explicit clause.

• It is essential to remember that the other party to the contract retains the right to refuse to renegotiate. If this renegotiation fails, it will then be up to the judge to review or terminate the contract (with the uncertainty and deadlines that this implies).

How does the hardship clause work

To be effective, this clause must be written precisely. It should include:

• The specific circumstances that justify renegotiation (inflation, resource crisis, etc.),
• The stages and deadlines of the renegotiation, and
• Actions in the event of a failed renegotiation, such as the intervention of the judge to review or terminate the contract.

Concrete examples

• Food SMEs and price fluctuations
  An SME in the agri-food sector, experiencing the volatility of raw material costs, can use the hardship clause to adjust its prices with its distributors in the event of excessive price increases, guaranteeing the viability of its operations without major losses.

• Tech startup and the semiconductor shortage
  A tech startup dependent on imported semiconductors could renegotiate its selling prices or delivery times in the event of a supply crisis. Without this clause, it could be forced to sell at a loss or suffer costly delays.

Hiring a lawyer: a strategic investment

The drafting of this clause requires the expertise of your in-house lawyer or, if you do not have one, your business law lawyer.

He will ensure that the hardship clause is perfectly adapted to the reality of your business and that it will be legally effective in the event of a dispute. By integrating this clause into your contracts, you secure your business against risks that are often costly and unpredictable.

In short, the well-written hardship clause ensures that you can adjust your contractual commitments according to unpredictable market developments, thus guaranteeing the resilience and sustainability of your business.

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